The Public Investment Corporation (PIC), Africa's largest asset manager, is an enigma to analysts and investors, who say that the rationale behind some of its deals is not always clear.

Its critics have said the PIC is open to political manipulation, which has influenced some of its investment decisions and exposed millions of pensioners to high-risk, low-return deals that could impact on its returns.

But its supporters say the pension-fund investor has delivered good returns, consistently outperforming the benchmark based on the FTSE/JSE all-share index.

The PIC's investments contribute to about 13% of the market capitalisation of the JSE, which means the pension-fund manager wields a great deal of power in many boardrooms.

The PIC manages R1.4-trillion of the South African government employee retirement funds on behalf of the Government Employment Pension Fund (GEPF), which makes up 90% of the PIC's client base.

The fund manager has been in the firing line recently over several deals that have raised questions about whether the corporation has succumbed to political pressure in selecting investments regarded by some as high risk and low yield.

Kase Lawal's donations
Two recent such deals are a R3-billion investment in the oil and gas company Camac and the PIC's decision to pay R3.9-billion for ArcelorMittal's share of a manganese mine.

Nigerian-American businessman Kase Lawal owns Camac and makes annual donations to President Jacob Zuma's charity, the Jacob G Zuma Education Trust. The PIC offered to buy a stake in Camac just days after the Houston firm said it could face bankruptcy.

Questions have also been asked about the PIC supporting the buyout of Independent Newspapers by the politically connected Iqbal Survé and taking on R18.6-billion worth of South African Road Agency shares to enable the agency to upgrade Gauteng's freeways and install the electronic tolling system.

Before Elias Masilela took up his position as the PIC chief executive, there were allegations that his predecessor, Brian Molefe, for reasons that are not clear, colluded with former communications minister Dina Pule to vote directors off the board of Telkom, which had been losing value.

The GEPF has long invested in Sanral, which also fulfils the PIC's mandate to deliver economic growth, so it is not surprising that the PIC supported the Gauteng freeway upgrading programme.
But the project's debt was allowed to escalate, which has raised concern.

Masilela declined to comment, but he told the weekly Financial Mail about two years ago that the PIC would be paid out for the bonds it held, which meant pensioner's funds would not have been at risk.

Possible political interference
The government — in reality, the taxpayer — would have had to foot the bill if the e-toll deal had not gone through.

One analyst said it was possible that there was political interference in some deals.

"Where I would look is around the private equity non-listed entities; the PIC is big enough to lose some money now and then," he said.

But analysts and investors believe the PIC's record suggests the pension fund manager has a sound strategy.

Ian Cruickshanks, the chief economist of the South African Institute of Race Relations, and Mohammed Nalla, the head of strategic research at Nedbank Capital, said the PIC has opted for a long-term strategy that could baffle some analysts about its investment decisions.

Cruickshanks said the spread of the corporation's asset allocation — 45% in equity, 35% in bonds, 9% in cash and money market and about 6% in offshore assets — was a good strategic plan.

Investors become traders
"A pension fund must always keep some holding in bonds because they can be sure of the capital security," he said.

"The market mentality at the moment is a pervasive preoccupation with short-term investments, so investors effectively become traders," said Nalla.

"Buying for the long term requires a different strategy and the PIC is looking at a 30-year view. There is constant friction between short-term and long-term objectives.

"Sometimes it is difficult to see the rationale behind [the PIC's] decision but, over time, it has made pretty sound investments. It has bought shares in companies that are undervalued because it can see future value," Cruickshanks said.

He approved of the PIC expanding its shareholdings outside South Africa "because that is where corporate South Africa is going."

He said the PIC did not always get it right but that "it's hard to criticise PIC on those grounds, because no investor gets its right all the time".

Boardroom battle
The PIC's first major experience in African investment found it embroiled in a boardroom battle over Togo-based Ecobank Transnational, in which the GEPF holds a majority shareholding of 20%.

Ecobank announced in January that the group executive director for finance and risk, Laurence do Rego, was "no longer an employee of the company". Its chairperson Kolapo Lawson left under a cloud in October.

Do Rego, who was suspended in August, allegedly wrote to Nigeria's Securities and Exchange Commission to raise corporate governance issues, including allegations that she had been coerced into misstating the bank's 2012 results.

The disputes raise concerns about the bank's leadership but the PIC has said it is comfortable with its Ecobank holding.

Some have criticised Masilela for not being as vocal as Molefe, who took companies such as Sasol and Barloworld to task during his tenure for a lack of transformation.

Masilela was quoted as saying soon after taking up his post that he had decided early in his tenure not to engage in public debate in the media.

Dealing in a bull market
Cruikshanks and Nalla said Masilela had become a much more active investor, which could be in line with the present environment.

"Where you are dealing in a bull market, with the JSE reaching a new high this week, there tends to be a high rate of company activity, with companies looking to buy other companies and lots going on."

Cruikshanks said the background role adopted by the PIC for some time probably had to do with its "reluctance to be seen to be influencing corporate strategy".

But that is not to say it was not active behind the scenes. The PIC is credited as having been key in the eventual resignation of Anglo American chief executive Cynthia Carroll, who was seen to be underperforming.

Masilela broke his rule of not speaking out publicly when he issued a statement in reply to accusations by Chile's CFR Pharmaceuticals that the PIC was guilty of protectionism for opposing its bid for the pharmaceuticals manufacturer Adcock Ingram.

The PIC said that its objection to the deal was based on concerns over how Adcock would be managed and on the fact that CFR was a family-run business.

But one analyst pointed out that the PIC owns 16% of Bidvest, the competing bidder.